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  • Manan Parekh

How gold can be implemented in an ESG-friendly portfolio

Without a doubt, ESG (Environmental, Social, and Governance) investing is the future of asset management and investment. According to a Bloomberg analysis, global assets in ESG investments are expected to increase to $53 trillion by 2025, up from $37.8 trillion in 2022. By 2025, it's anticipated that 33% of all global assets will have ESG obligations.


Many asset classes, including gold, are automatically viewed as non-sustainable or non-ESG. A well-diversified portfolio has always included gold as a key asset, specifically as a safe haven to hedge against market risks. Yet, the mining and processing of gold has frequently been known for being particularly energy-intensive and having a detrimental social and ecological impact. According to a report by the United Nations Environment Programme (UNEP), the mining of gold generates an estimated 1,000 metric tons of mercury pollution annually.


Investors who now prioritise sustainability in their portfolio face a challenge when it comes to including gold as a diversifying asset. While gold is known to diversify portfolios, it can also make the portfolio less sustainable. To solve this problem, one solution is to invest in recycled gold. Recycled gold is a more environmentally friendly option as it has a significantly lower carbon footprint compared to mined gold, therefore reducing its ecological impact.


Recycled gold is gaining popularity beyond the financial markets. Many jewellers and high-end watch manufacturers have focused on utilising recycled gold in their products. Also, with the surge in electronic waste, many hardware manufacturers have started incorporating recycled gold into their products as well. One key example is Apple, which has now transitioned to using 100% recycled gold in the plating of their main logic board, as well as the wiring of their front and rear cameras.


The Royal Mint has also outlined its aims to increase its use of recycled gold, focusing on ensuring that a portion of all gold bars under management are composed of 100% recycled gold. The Royal Mint has an extensive physical coin and bar business, which it can draw upon to source recycled gold.


Even if recycled gold is the most environmentally friendly choice, this does not address the problem of unsustainable gold mining. Supporting the gold miners who use the best and most sustainable methods, however, might be a solution. Investors can ensure that their gold is mined with the least amount of environmental damage. Additionally, by encouraging mining companies to prioritise sustainable practises, this strategy helps the sector move towards a greener future.


With the AuAg ESG Gold Mining UCITS ETF, investors can access a diverse portfolio of 25 gold mining companies that have undergone ESG screening. An ETF, or exchange-traded fund, is a type of investment fund that trades on stock exchanges and holds a diversified portfolio of assets.


Gold mining companies with low ESG risk characteristics are the primary focus of the Solactive AuAg ESG Gold Mining Index, which is tracked by the ETF. Only the top 25 firms with the lowest ESG risks are included in the index. The ETF has a AAA ESG grade from MSCI, a leading provider of financial statistics, which is the best rating attainable due to its exceptional ESG credentials.


In conclusion, ESG and sustainable investing are the way forward for asset management and investment, but not all asset classes are ESG compliant or sustainable, like gold. Sustainable investors can however include gold in their ESG portfolio by backing gold miners who use the best environmental practices or by investing in recycled gold. These choices guarantee that gold is obtained sustainably and with the least possible negative environmental impact, aligned with the objectives of ESG and sustainable investing.


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